Bitcoin Taxes

What is Form 1099-B for Cryptocurrency Tax Form? How to Use It?

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August 16, 2022
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    In the last few years, cryptocurrencies have shown tremendous growth. This asset class is not just for investment, you can use it as a medium of exchange as in pay or receive crypto as payment, buy goods and services with it, receive or send a small amount as a gift. 

    This multi-purpose asset class is so famous due to its decentralized nature, meaning they don’t work under a bank and governments don’t get involved in their operations. Nonetheless, it is significant that you understand the tax implications of investing in or using cryptocurrencies. 

    While reporting your crypto taxes you might have to fill out more than one crypto tax form. One such form is 1099-B for cryptocurrency. This form makes it easy to report your crypto capital gains, but it might also contain some inaccuracies or incomplete information regarding your tax report. Keeping all these aspects in mind, we have created a guide specifically for the 1099-B cryptocurrency tax form. Let’s begin with what it actually is.

    What is Form 1099-B? 

    1099-B cryptocurrency tax form tracks the disposal of capital assets. The form has details pertaining to gross proceeds, cost basis, and capital gains and losses. Crypto exchanges have to send this form to the taxpayers and the IRS. 

    Do you get a 1099-B for cryptocurrency? 

    Currently, there’s no guidance as to what 1099 Form (there are several) crypto exchanges have to provide to their users and the IRS. According to the 2021 American Infrastructure Bill, however, this will change in the near future as crypto exchanges will be asked to send Form 1099-B from the year 2023. Other than that, crypto exchanges can issue other 1099 Forms such as 1099-MISC and 1099-K.

    Which Exchanges Issue 1099-B? 

    Even though Coinbase is a major crypto exchange, it doesn’t issue crypto 1099-B tax forms to its users and the IRS. Although, there are a few exchanges that issue this such as Robinhood, Bittrex, Cash App, BlockFi, and Uphold

    Do I Need to Include 1099-B On My Tax Return? 

    Crypto 1099-B tax form is not considered an entry form and therefore, it is not mandatory to include it on your tax return. However, the information on the form is highly useful for reporting your capital gains and losses. 

    If you don’t report your transactions on Form 1099-B for cryptocurrency, your transactions will be flagged automatically and you’ll receive a Notice CP2000, a letter with detailed information regarding the issues identified by the IRS in your tax form. The IRS also provides steps to resolve these issues. 

    It is important to remember that all your crypto profits and income have to report whether they are on Form 1099 or some other form. The IRS can track your transactions even if you don’t mention them on crypto tax forms. 

    How Do I Report Cryptocurrency Disposals? 

    If you sell your crypto tokens, the transaction should be reported on Form 8949. You should also mention the details of the transactions such as your cost basis, description of the property, gross proceeds, the date you purchased the asset, and the date you disposed of it. 

    Why Is the Information on My Form 1099-B  Incomplete/Inaccurate? 

    If you use more than one crypto exchange or wallet and transfer cryptocurrencies between them, it can lead to inaccuracies on your Form 1099-B. In such cases, your crypto exchange will not have the complete information on your cost basis, which is important in calculating your capital gains and losses. 

    For instance, If Carl decides to sell his Ether on Coinbase for $40,000 that he bought for $30,000, he should have a capital gain of $10,000. However, Coinbase doesn’t know the original cost basis of David’s Ether, it may report the cost basis as ’n/a’ or ‘$0’ on Form 1099-B for cryptocurrency. 

    If Carl doesn’t have the proof of purchase at $30,000, he might have to pay taxes on the full $40,000 of capital gain. 

    Cost Basis Transfer Reporting

    The natural solution to this problem seems easy. Crypto exchanges should just report cost basis information to each other whenever someone transfers cryptocurrencies from one exchange to another. Sounds simple, but unfortunately, that is not how it works. 

    At the heart of it, digital assets and cryptocurrencies operate on blockchains i.e, in a completely decentralized fashion. They are not dependent on a third party to operate or exist. Yes, many centralized exchanges interact with blockchains a lot easier, but they are very small in number.  

    There are thousands of decentralized exchanges, wallets, and non-fungible tokens (NFT) marketplaces. To make Form 1099-B for cryptocurrency tax reporting really effective, crypto workers have to work in a siloed fashion. They would have to stop transfers into and out of the platform to keep the cost basis information intact.

    What Should You Do?

    Since this problem can’t be solved immediately, you can take the help of a crypto tax software like ZenLedger.

    With ZenLedger, crypto tax reporting is remarkably stress-free. When you open an account on the platform, you can import all your transactions from every crypto exchange you use. It is possible because ZenLedger supports more than 500 crypto exchanges. 

    Once you import all your transactions, the software will automatically calculate your cast bases, fair market value, and gains/losses on transactions. Next, you have to review all your transactions and if a transaction seems off, you can resolve it with ZenLedger’s resolution center. Other than that, you can also review your mining, staking, and lending as well as gifts, airdrops, and forks. 

    After the transactions are reviewed, the last step is to generate your tax reports. Again, ZenLedger provides ease at this step as it auto-populates your tax forms such as IRS Form 8949, Schedule 1, Schedule D, and many others. 

    And violá, your crypto tax reporting is done. 

    To Summarize

    Before you start investing in cryptocurrency, understanding crypto taxes is necessary. Taxes can be confusing for a beginner and with different forms, you can end up paying more than you owe to the government. One of those forms is Form 1099-B for cryptocurrency, which might not be the most accurate while reporting taxes. Therefore, seeking help from a crypto tax software such as ZenLedger might be the best course of action.

    1099-B for Cryptocurrency - FAQs

    1. Do you need 1099 for cryptocurrency?

    Yes, you need 1099 Forms for reporting taxes on cryptocurrency. This form makes it easy to report your crypto capital gains, but it might also contain some inaccuracies or incomplete information regarding your tax report. Other than that, you also have to use Form 1099-MISC, which reports 'miscellaneous' income to taxpayers and the IRS.

    2. How do I file the 1099-B crypto form?

    The gains and losses mentioned on Form 1099-B are utilized by tax professionals or crypto tax software such as ZenLedger to generate Form 8949. This Form consists of net capital gains and losses of all your investments including your investments in cryptocurrencies.

    3. What 1099 form do I use for cryptocurrency?

    Crypto 1099-B tax form is not considered an entry form and therefore, it is not mandatory to include it on your tax return. However, the information on the form is highly useful for reporting your capital gains and losses. If you don’t report your transactions on Form 1099-B for cryptocurrency, your transactions will be flagged automatically and you’ll receive a Notice CP2000.

    4. Do I have to report every crypto transaction?

    Yes, you have to report all your crypto income, gain, or loss as they are all taxable events. If you don’t report these transactions on your crypto tax forms, you might get audited by the IRS.
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